Barclays Capital predicted yesterday that Taiwan’s economy could expand 9 percent for the full year thanks to a cross-strait trade pact, while it expected the central bank to continue normalizing its still-low policy rates.
“We maintain our positive view on Taiwan. The government continues to pursue its comprehensive economic revitalization agenda,” the leading British investment bank said in its latest report.
Barclays’ GDP growth forecast for Taiwan remains the most optimistic among all foreign banks. On Monday, Standard Chartered Bank forecast that the country’s economy would grow 8.8 percent this year. The investment bank said the Economic Cooperation Framework Agreement (ECFA) would likely have a catalytic effect on the economy, which it said was already experiencing a strong cyclical recovery.
Against this robust economic backdrop, Barclays believes that the central bank will continue to normalize rates in its policy meeting at the end of this month by raising the policy rate 0.125 percentage points to 1.5 percent, partly to tame a housing bubble.
The bank, however, warned that policymakers should remain cautious about the monetary policy, because Taiwan’s economy needs more policy support.
“Part of this is due to the slow recovery that we see in the labor market, with the unemployment rate still hovering above 5 percent,” it said.
The consumer price index dropped 0.46 percent last month from a year ago, the first decline in the inflation rate in the last eight months, the government’s statistics bureau reported on Monday.
However, Barclays said the result was because of last year’s high base and expected the negative index readings to be temporary and return to positive territory in the fourth quarter this year.
Economists at both Deutsche Bank and Credit Suisse said they expected the central bank to raise the benchmark interest rate by another 25 basis points for the rest of this year to normalize monetary policy.
“Despite a benign inflation environment, we expect the central bank to deliver two more 12.5 basis points rate hikes in the second half — one each in the third quarter and the fourth quarter — in response to strong economic recovery,” Deutsche Bank said in a report on Monday.
Credit Suisse, meanwhile, said the central bank would be concerned more with the negative impacts of excess liquidity on property prices than with a perceived general inflation threat.
“But growth risk stemming from slowing exports and industrial production may prompt the central bank to be more dovish,” the Swiss brokerage said in a client note on Tuesday.
ADDITIONAL REPORTING BY KEVIN CHEN
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